European Coordination at the World Bank and International Monetary Fund: A Question of Harmony?

Imperfect harmony: European coordination in the World Bank and IMF
The importance of the World Bank and International Monetary Fund for low-income countries
and countries in financial crises is well-known. Their influential roles include direct financing,
aid coordination, and analysis of development and financial policy options. During 2005 the
institutions gained in prominence – with G8 governments, for example, requesting the World
Bank to play a major role in coordinating official aid flows. The governance of multilateral
bodies has also been in the spotlight again, notably during the controversial selection of Paul
Wolfowitz to head the World Bank. For Brussels it was the debate about a European
Constitution, rejected by the voters of France and the Netherlands.
Despite the constitution debacle, European political coordination is increasing in a number of
fields, including management of aid and governance of international institutions. There has
been a low-key but important debate about how European governments should approach
their duties and responsibilities in governing the World Bank and IMF. Among the key
European figures who have recently weighed in on this issue are Michel Camdessus (former
head of the IMF), Lorenzo Bini-Smaghi (a board member at the European Central Bank) and
Romano Prodi (former President of the European Commission) and Louis Michel (EU
Development Commissioner). Michel, for example, commented this month that “the EU does
not have the influence it should in the World Bank”, and demonstrated his dissatisfaction by
announcing the establishment of a new EU Trust Fund for Africa which will be governed
separately from the World Bank and effectively compete with it.
This study, commissioned by a range of European non-government organisations, reveals
that within the World Bank European governments are increasingly holding coordination
meetings and processes. It shows that on some issues, and in particular in relation to the
IMF, coordination has moved beyond a pro forma exercise to something with a real chance of
influencing strategy and policy lines. In relation to the World Bank the meetings have yet to
yield substantial changes, but have improved information-sharing and set the stage for a
change in approach. Yet sustained, significant changes face major obstacles: including the
division of European governments into G8/non-G8 and Eurozone/non-Eurozone. Further
difficulties include the strong views of certain smaller European countries which currently
have a representative on the IFI boards, often at the head of multi-country constituencies of
non-EU ones.
Some players argue that Europe needs to coordinate in the institutions to counter-balance the
U.S. dominance and assert progressive social and economic policies. Others that European
governments are over-represented and should slim down the number of board seats they
hold to provide more space for low- or middle-income countries. Proponents of this change,
such as Mr Bini-Smaghi, argue that Europe should proactively seek change or it will be forced
to do so if, for example, Asian countries build momentum to establish their own Asian
Monetary Fund.
Whatever the result of this grand debate about whether the Europeans should surrender
some board seats, the embarrassment of poor coordination was clear for all to see last year.
The British government, which simultaneously held the Presidency of the G8 and the EU,
failed to consult and win over a number of smaller European governments to its proposed
multilateral debt deal. The outcome was an embarrassing row conducted through the media.
The co-commissioning groups are publishing this report to reveal the current workings of
European governance of the IFIs and contributing to further debate on its evolution. The
NGOs will continue to carry out their scrutiny and advocacy work at the member state capital
level – which remains the primary locus of decision-making – but also monitor and use the
increasing European processes, such as the regular visit of European Executive Directors to
Brussels. This work will continue to be carried out closely with parliamentarians, which in
some countries have already instituted regular scrutiny processes of their participation in the
Bank and Fund. Some Members of the European Parliament are now urging that they also
receive such a report.